Success in Europe Puts Tandon Back Into the Black
As always, big changes are going on at personal computer maker Tandon Corp.
Gone is the disk drive data storage business that made the company’s founder and chief executive, Sirjang Lal (Jugi) Tandon, one of the best-known names in the computer equipment business. In March, it was sold to Western Digital in Irvine, which paid $49 million in cash and agreed to assume $28 million in Tandon bills.
Gone also are the four former IBM executives Tandon hired with much hoopla a little more than two years ago. The quartet was hired to transform the company into a major maker of personal computers with IBM’s disciplined, white-shirt management style. Soon to be gone from Chatsworth are the company’s headquarters, which this summer will move to Moorpark in Ventura County.
Also gone are the big losses that plagued the company. In its 1985 and 1986 fiscal years, Tandon lost nearly $200 million.
After all that, the 12-year-old company is now solidly profitable, thanks to eliminating its money-losing operations and concentrating on its new personal computer line. It doesn’t hurt that the computer industry is going through a surging revival.
“We are a world-class player in the PC market,” said Chuck Peddle, Tandon’s executive vice president and chief operating officer.
Last year, Tandon posted a profit from its personal computer operations of $17.1 million, contrasted with a loss of $2 million a year earlier, with sales rising 184% to $289.1 million. In the fourth quarter that ended March 31, profit rose 39% to $7.2 million, with sales climbing 34% to $80.3 million.
Still, a close look at the numbers shows that the company still has things to worry about. Although sales and profits are up sharply, between 70% to 80% of its sales come from Europe, where it is believed to be one of the top five sellers of personal computers.
The large percentage of European sales is significant. It means that some of Tandon’s big profit increase is due to the strengthening of European currencies against the weaker dollar. It also leaves the company at the mercy of currency swings, which could crimp profits if the dollar strengthens.
In addition, it means that Tandon remains a minor player in the U.S. computer market two years after it introduced its brand-name personal computer with a splash of national advertising, press conferences and interviews.
Despite Tandon’s financial turnaround, investors are showing little interest in Tandon. The company’s stock closed at $2.125 a share in over-the-counter trading Friday, down from $5.50 a share a year earlier when the company wasn’t doing nearly as well.
“They have to do something to get people in the industry to pay attention,” said Stewart Alsop, publisher of PC Letter in Redwood City, in the Bay Area. “There’s an incredible amount of stuff going on” in the industry “and, if you want attention, you have to be doing extraordinary stuff.”
Peddle and Jugi Tandon say it was the company’s choice to emphasize computer sales to Europe, where Peddle is well known and has widespread contacts. Because they have been unable to keep up with demand for their computers, they chose to sell their machines overseas, where the company’s distribution network is better established.
The company also contends that profits are up because demand has allowed Tandon to raise prices on its higher-profit personal computers, such as the ones modeled after IBM’s AT model.
Peddle says Tandon’s main problem now is making enough computers to match the growing demand and, to a lesser extent, to cope with the industrywide shortage of chips that go into the machines.
Tandon first branched out into the computer-making business in 1984 when it made a personal computer for Tandy Corp. In late 1985, Tandon hired Dan H. Wilkie, a top IBM executive who was instrumental in introducing that company’s personal computer. Along with Wilkie, the company hired former IBM executives H.L. (Sparky) Sparks, Joseph A. Sarubbi and William Sydnes.
All have since left. Wilkie, who now heads a start-up personal computer company in Westlake Village called Dynabook Technologies, said he resigned as president last summer because he was not allowed the autonomy he wanted. He said Jugi Tandon wanted to reassume much of the operational duties.
“He’s not unlike a lot of entrepreneurs who say they want to let go of the day-to-day operations, but they don’t always do it,” Wilkie said.
He added that he and Peddle disagreed over marketing expenses, which Peddle wanted to increase. “I still saw the company as struggling and wanted to work more on profit than running up revenue,” Wilkie said.
Industry observers believe that Peddle, who was hired as a consultant to develop computer sales in Europe about the time Wilkie was hired, is taking an increasingly dominant role at Tandon.
Peddle’s involvement in the personal computer business dates to the 1970s, when he helped design Commodore International’s computers. He also founded Victor Technologies in Scotts Valley, Calif., which fell on hard times and reorganized under Chapter 11 of the U.S. Bankruptcy Code in 1984 and 1985.
Last week, reporters had an informal meeting with Jugi Tandon and Peddle. But it was Peddle who did most of the talking. At one point, Peddle called the company the only personal computer maker of note in Southern California, which brought reminders from reporters that AST Research in Irvine has emerged as a major player.
Certainly, Tandon has been one of the busiest. Its backlog of orders is said to be 25,000 to 30,000 computers. Peddle said the company plans to boost the production capacity of its plants from about 30,000 computers a month to 50,000.
Tandon also has been introducing a flurry of new products, such as models that take up less space. Another model features a portable hard-disk drive about the size of a small shoe box that slides into the computer in much the same way a videocassette slides into a VCR.
The large number of products the company has introduced has brought some criticism from dealers, who say its product line is too broad and confusing.
But Peddle is undeterred. He said Tandon wants to introduce a large number of products. “We are a supermarket,” he said.
Key among these products is the removable disk drive, something the company introduced last year in a series of announcements that made it sound like the biggest revolution since the personal computer was invented. The removable drive would allow customers, in effect, to take their computer to work with them and plug it into any machine in the world.
Tandon began work on the product in 1985 for Xerox, which later decided against the idea. Wilkie said the product was delayed by about two years because it was a more difficult project than expected.
Peddle and Jugi Tandon still talk as if the removable disk drive will change the way computing is done, and predict that Tandon will set the standard even though a number of rivals are introducing other portable data-storage systems to rival Tandon’s. Peddle said products related to the removable disk drive product now make up about 20% of Tandon’s sales.
Some analysts call Tandon’s product interesting, but question whether people really need to carry a hard-disk drive around with them.
“With all the demand on people’s money, buying a removable hard-disk drive seems way down on the list,” Alsop said. “It’s a nice idea and I don’t take anything away from them, but it’s not nice enough to get people excited.”
TANDON’S SALES FROM ITS COMPUTER BUSINESS (Continuing Operations) in millions (includes U.S. and Europe sales)
1st Qtr. (ended 3/31/88): $80
1987 Fiscal Year (ended 12/31/87): $298
